Charitable trusts and the difference between a charitable lead trust and a charitable remainder trust
For many of us, philanthropy can provide great personal satisfaction. However, when properly planned for, charitable giving can provide financial benefits both today (as an income tax deduction and/or capital gains tax shelter) and in the future (when the amount of taxes your estate may owe when you die can be reduced).
There are many ways to give to charity. A common vehicle for many families is a charitable trust, where a charity is named as the sole beneficiary. You may name a non-charitable beneficiary as well, splitting the beneficial interest (this is referred to as making a partial charitable gift). The most common types of trusts used to make partial gifts to charity are the charitable lead trust and the charitable remainder trust.
What is a charitable lead trust?
A charitable lead trust pays income to a charity for a certain period of years, and then the trust principal passes back to you, your family members, or other heirs. The trust is known as a charitable lead trust because the charity gets the first, or lead, interest. A charitable lead trust can be an excellent estate planning vehicle if you own assets that you expect will substantially appreciate in value. If created properly, a charitable lead trust allows you to keep an asset in the family and still enjoy some tax benefits.
SOURCE: Broadridge Investor Communication Solutions, Inc. Copyright 2017
What is a charitable remainder trust?
A charitable remainder trust is the mirror image of the charitable lead trust. Trust income is payable to you, your family members, or other heirs for a period of years, then the principal goes to your favorite charity. A charitable remainder trust can be beneficial because it provides you with a stream of current income — a desirable feature if there won’t be enough income from other sources.
SOURCE: Broadridge Investor Communication Solutions, Inc. Copyright 2017
Note: There are expenses and fees associated with the creation of a trust. Please speak to your financial and/or tax professional to understand the cost and tax implications of your particular giving situation.
CIG Asset Management Update November 2019: Optimism versus economic data: Has the market already priced in most of the good news?
U.S. equity markets reached new all-time highs at the end of October. The S&P 500 Index increased 2.0%.(1) Foreign stock markets continued their recent outperformance over U.S. equities as international stocks, measured by MSCI EAFE Net(2), advanced 3.6% last month and the MSCI Emerging Markets Net(2) was up 4.2%.
The Federal Reserve, as expected, cut short term interest rates by 0.25%. Longer term U.S. rates increased by 0.08 – 0.11%.(1) The Barclays U.S. Aggregate Total Return Bond Index (3) increased by +0.3%. German government bond yields became less negative, moving up 16 basis points to -0.41% and Japanese government yields moved up 8 basis points to -0.13%.(1)
There were plenty of reasons to become more optimistic in October. Negative bond yields worldwide became less negative, especially in Germany and Japan.(1) The September unemployment rate was 3.5%(4), the lowest in 50 years. Nearly 74% of the 341 S&P 500 companies that reported earnings during the month beat lowered estimates.(5) Markets traded higher at the end of the month on hopes that the trade war would de-escalate as the U.S. and China announced a partial trade deal at the White House on October 21st. A deal was not actually signed, details were lacking, and both sides said talks would continue. Europe was relieved that it did not have to worry at this time about a “no deal” Brexit after a deal was reached to extend the original October 31 Brexit deadline to January 31, 2020. The Federal Reserve injected more liquidity into the banking system and said it would start purchasing $60 billion in treasury bills monthly and increase daily repo operations to $120 billion per day from $75 billion.
However, an abundance of data shows that the economy continues to slow. The September ISM Manufacturing purchasing managers’ index came in at 47.8%(6), the lowest level since June 2009. A number below 50% indicates a contraction in manufacturing. ISM Non-Manufacturing Index came in at 52.6, down from August at 56.4 and a 3 year low.(7) The Bureau of Labor Statistics (BLS) reported August Job Openings Levels: Total Nonfarm (JOLTS), decreased to 7.051 million, the lowest number of openings since March 2018.(8) Corporate earnings results are down -0.6% on 4.9% higher revenues than one year ago.(5) Companies buying back their own shares has been a major contributor to the rally since 2009. Goldman Sachs analysis warns that they anticipate 2019 stock buybacks will drop 15% in 2019 to $710 billion and continue to drop in 2020. Corporate buybacks currently provide more demand for stocks than any other individual source, including households, mutual funds or exchange traded funds. Buybacks as a percentage of trailing annual free cash flow has historically peaked near the highs of the market, i.e.: 2000, 2008, and 2016.(9) Lastly, the Federal Reserve is still looking at how to fix short term funding market strains, according to Chairman Jerome Powell at his post FOMC rate cut press conference on October 30. “One thing that was surprising about the episode was that liquidity didn’t seem to flow as one might have expected”, said Powell.
In summary, while the U.S. economy is enjoying its longest expansion in American history, we believe that much of the good news very well may be priced into equity markets. The Federal Reserve began injecting massive amounts of liquidity into the banking system and still does not know why there are short term funding issues. Global economic growth continues to slow. We believe the markets have effectively priced in a U.S.-China trade deal despite its tenuous and elusive nature. We are continuing our defensive posture that we adopted when we recently transitioned to “a later cycle approach” in portfolios during the quarterly rebalance. We still have exposure to equity markets should they continue to move higher but will look to shift, if conditions warrant.
This report was prepared by CIG Asset Management and reflects the current opinion of the authors. It is based upon sources and data believed to be accurate and reliable. Opinions and forward-looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.SOURCES:
1. Calculated from data obtained from Yahoo Finance, as of 11/07/2019
2. Data obtained from MSCI, as of 11/07/2019
3. Calculated from data obtained from Bloomberg, as of 11/08/2019
4. Bureau of Labor Statistics 10/04/2019
5. Zacks, 11/01/2019
6. Institute for Supply Management 10/01/2019
7. Institute for Supply Management 10/03/2019
8. Bureau of Labor Statistics 10/09/2019
9. Goldman Sachs 10/21/2019
Enhancing revenue and controlling expenses should be the primary financial focus of every medical practice.
Improving operational efficiencies can help bring a practice closer to achieving these financial goals. Here are some ways you can maximize your practice’s revenue stream and reduce costs without sacrificing patient care:
Keep Coding Current
Coding errors are all too common. Simple errors end up costing medical practices money as well as time to rectify mistakes. Delays or denied claims translate into reduced reimbursements, which, in turn, affect cash flow.
To minimize coding errors, you need to identify the cause of the problem. Typically, miscodes are due to undercoding to avoid penalty risk, using outdated data, or leaving coding decisions to inexperienced support staff. Periodic assessments of your practice’s coding accuracy can help uncover problem areas. These assessments could include a review of your practice’s forms and a comparison of billing codes with the actual services that were provided.
Maintaining updated coding manuals and software, keeping a code reference summary handy in exam rooms, and using online coding resources can help your practice attain a more accurate coding rate. So too will making notes during each patient visit. Be sure to have your staff attend refresher courses to help them stay current with coding practices.
Improve Employee Productivity
Eliminating inefficiencies and boosting employee productivity directly benefit your practice’s bottom line. Try these approaches to improving the productivity of your practice:
o Define productivity goals and offer incentives to your staff for reaching those goals.
o Delegate administrative functions so that physicians spend the greater part of their day seeing patients.
o Maximize physician and medical assistant billable time by planning patient flow carefully.
Better Control of Staff Time
Are your overtime expenses increasing from quarter to quarter? While some overtime is unavoidable, a consistent rise in overtime hours deserves some scrutiny. Review the payroll records of your non-exempt employees to determine who worked overtime and why. Was your practice fully staffed and simply busy or was it short one or more employees on the days when the overtime occurred? If overtime was necessary because you were short-staffed, see if this was due to vacations or some other controllable situation. It may be time to revise your practice’s policy on vacation time if scheduled time off was the cause of the overtime.
Update Fee Schedules
If your practice hasn’t raised fees in some time, you may want to consider appropriate increases. Just be aware that some patients may be resistant to fee increases and could switch to another provider. In addition, take a look at the reimbursement rates of all the plans you participate in. Run the numbers to determine whether it makes financial sense to continue accepting patients from some of the plans that reimburse poorly.
Medical and office supplies make up a portion of a practice’s expenses. Yet, some practices rarely shop around for more competitive prices. You can control expenses by becoming a smarter shopper. Pick some of your practice’s “high-volume” items and find out how much other vendors are charging. Use that information to negotiate lower prices with your current suppliers, consolidate orders with fewer vendors, or switch to new suppliers to save money.
Eliminating inefficiencies and boosting employee productivity directly benefit your practice’s bottom line. The business advisory professionals at CIG Capital Advisors can work with you to identify areas in your medical practice where streamlining operations may help optimize your practice’s bottom line.